This week, PeakProsperity.com's own precious metals analyst, Dave Pare, sits down to the microphone.
Better known on the site as davefairtex, he joins Chris to discuss his current outlook for gold and silver, his approach to building market models, and how he balances fundamentals versus technical analysis in assembling his macro views.
Dave has been a daily contributor to the site for years — not just with his precious metals commentary, but also with thoughtfully constructed comments on a host of topics. His opinions are pointed, and occasionally controversial. But his ability to always challenge readers to think make him widely respected, even by those who don't agree with him.
In this podcast, we get the chance to learn much about the man behind the keyboard. It's well worth the listen:
I'm a software engineer. I went to UC-San Diego and then went into industry and did lots of different things. I was an individual contributor, an architect, a tech manager and then I found Peak Prosperity, and that sort of sidetracked my whole life.In my training as a trader, you can’t be over-focused on whatever your idea is of where things should be going, or where you think they should be, or what the value should be. Prices really do have to dictate what your reaction is. Prices in some sense are your reality.That isn’t to say they reflect the reality of the real world; but they are your arena. If you ignore prices, you lose money. And, so from a standpoint of trading, prices are it. Prices determine whether or not you fail or succeed, whether or not your trade was good or bad. And, so in that sense, prices are everything.
But from the standpoint of are we going to use these prices as predictors of our future — are we going to find more oil? are we going to do more of this or more of that? — well, prices are largely irrelevant. You’re playing at forecasting: what's the world going to look like in 20 years? That’s out of my paygrade. What I deal with are my daily prices. It’s really more a question of: OK, so am I going to succeed or fail based on what I see going on right now?
Again, I have a daily market commentary, and so it's a daily timeframe. And, so that’s the other piece of this. I mean, when I sit here and I do commentary about gold and then I say: Well, the trend is this. If you step and look at the past 3-to-6-months , you can say, Well, gosh, with negative rates, gold looks pretty good. I really do think gold is quite strong right now, especially if you compare it to where we were last year.
Click the play button below to listen to Chris' interview with Dave Pare (55m:49s)
Chris: Welcome to this Peak Prosperity podcast. I am Chris Martenson and it’s 7/14/2016. I like saying 7/14. That’s my magic number. Here I am. I’m in Las Vegas. I’m at the Freedom Fest and I’m doing this from a hotel room, so this is an on-the-road podcast.
Wow. Equity markets, they’re on fire. They’re hitting all-time new highs as I’m speaking. Gold and silver have caught a bid in recent weeks; but not today, because today seems to be a risk-off day. And, what I mean by that, when risk goes off the idea is you buy risky assets. So risk-on, the riskier the better. Gold and silver are considered safe havens, so they do relatively poorly on a risk-on moment. So, here we are.
But, sort of running counter to that, bonds also powering to all-time highs. Not even just slightly up. Swiss 50-year bonds now in negative territory. Yesterday, Germany sells, for the first time sells not in an aftermarket sort of a deal, but sold straight to investors negative-yielding 10-year bonds. First in the Eurozone to do that.
This is crazy. How do we make sense of this? Well, some people say don’t even bother trying to make sense of it, at least from a fundamental standpoint, because from a trading and investing standpoint all the information you need is contained in the prices. Well, with us today is our very own Dave Paré, also known as Dave Fairticks on the site. He runs the Precious Metals Daily Market Commentary at Peak Prosperity. Dave, welcome to the show.
Dave: Hey, thanks, Chris.
Chris: So, let’s introduce people to you. What’s your background?
Dave: I am a software engineer. I went to UC-San Diego and then went into industry and did lots of different things. I was an individual contributor, an architect, a tech manager and then I founded Peak Prosperity, and that sort of sidetracked my whole life.
Chris: So, sorry about that. How did you come across Peak Prosperity?
Dave: You know, I don’t remember. It’s been, gosh, probably 10 years. That long? I don’t remember.
Chris: Could it be? I don’t know.
Dave: But, bottom line, it was about oil and it was about peak oil. And, I read about peak oil and I thought, wait a minute, this can’t be right. Because, it really was, it went against the grain of pretty much the mainstream, which is where I was living. And, I said, well, no, I’m going to have to check this out, and so I did a bunch of research on my own and, yeah, I guess this is the real thing. Look at that. I took it to my friend and he’s like: “Yeah, wow, that’s the real thing.” And, we were both pretty astonished by it. And, then, of course, I went and bought property at the top of the bubble, and then, of course, the bubble broke. And, then I said, hey, wait a minute. So, something’s going on with my economy and I want to find out what it is.
You know, originally, I was just a software guy, just enjoying writing software. I really - I still love writing code, but I got sidetracked by, first your peak oil thing, and then the bubble, and then the breaking of the bubble. And, then I wanted to find out really what was going on. And then I took all my software skills and used them to write code to download data from everywhere and really figure out what’s going on. So, that’s - that’s where I’m at.
Chris: Well, it’s, you know, a very common story and we’re running into people here at Freedom Fest, which is a bunch of libertarians, and a lot of people have, are also very much in the Peak Prosperity camp. And, similar stories of just somebody this morning came up and said: “Wow, I just need you to know, this is how my life changed.” And, so I believe that - that there’s really important information out there and that once we get our hands on it, it should be life-changing and there’s no shortage of it. Of course, you know, we’ll cover everything at Peak Prosperity from possible election-rigging to missing insects to whatever.
But, the trends are really important, and I consider the markets to be a really important focus, because that’s, to me, a key signaling mechanism that sort of tells everybody, you know, risk-on, risk-off is the way that the traders look at it. I look at it as awareness-on, awareness-off. You know, if the markets are going to all-time new highs, people are kind of like, ahh, they’re awareness dial’s down. They say there’s nothing here to really worry about. So, I do care a lot about what’s going on in the markets and tracking them. I think they’re going to give us important signals.
But, I gotta tell you, Dave, my, my abilities as a fundamental analyst, they feel increasingly useless in these markets.
Dave: Yeah. It’s really two things. So, in my training, as it were, as a trader, ya can’t be over-focused on whatever your idea is of where things should be going, or where you think they should be, or what the value should be. Prices really do have to dictate what your reaction to—prices - in some sense your reality. That isn’t to say they reflect the reality of the real world, but they are your arena. I mean, it’s - they’re the incoming arrows that you’ve got to duck away from and what-not. So, if you ignore prices, you lose money. And so, from a standpoint of trading, prices are it. Prices are everything. Prices determine whether or not you fail or succeed; whether or not your trade was good or bad. And so, in that sense, prices are everything.
But, from the standpoint of: are we going to use these prices as predictors of our future, are we going to find more oil, are we going to do more of this, more of that; well, prices are, I wouldn’t say irrelevant, but they’re not - it’s not the same game you’re playing. You’re playing a forecasting sort of what is the world going to look like in 20 years. And that’s sort of your pay grade, if you will. And, what I deal with - my daily prices; it’s really more of, okay, so am I going to succeed or fail based on what I see going on right now, or for the next, you know, however many days.
And, again, I have a daily market commentary, and so it is a daily timeframe. And, so that’s the other piece of this. I mean, when I sit here and I do commentary about gold and then I say: “Well, the trend is this, that, this, that.” If you step and look at the three-to-six-month thing, you can say: “Well, gosh, with negative rates, gold looks pretty good.” And, I keep having to add that in, because I’ll say: “Oh, gold’s in a downturn now,” or whatever. But negative rates - really - gold seems to really like that. I mean, take today for example. Gold is, gold is down, but really gold got a bid. It looked like it popped back up 10 bucks, and our downtrend may not last that long. In fact, it may, I won’t say it’s over, but it had a pretty good bid on some pretty good volume.
So, I don’t know. I kind of like gold just in its, well, to go back to my Friday night thing (chuckles), but I really think gold is quite strong right now. And, especially, if you compare it to where we were last year, it was just, it was just—and, again, it’s less fun to talk about gold going down, because what if you say gold is going down to a bunch of gold bugs. They get upset. Imagine that.
Chris: Well, it’s almost the struggle between what should happen and what will happen, and I have a big soft spot in my heart for what should happen, because it sort of is a little bit of, it’s got a little right from wrong, it’s got, you know, it’s got evil characters, good characters. It’s got a little of that polarity built into it. Now, here’s the thing, negative interest rates should be a huge lift to gold. Remember, it was, for a long time, people would say about gold: “Oh, it’s just a pet rock. It doesn’t pay any interest.” Now, we can say: “Well, at least it doesn’t cost you anything.” Right?
Chris: And, but let me couple that to the idea that Japan is a very wealthy nation, the third largest economy in the world. Abe has just won majorities in both the Upper and the Lower Houses. He has got just a completely open field now to go forward and wreck the end like he wants to. And, well, because, you know, Japan is just an export nation. That’s it. That’s what they do. They import raw materials. They export finished goods. They make money on the vig between the, the spread between those two things. That’s what they do. So, he really needs a weaker yen. I think he’s going to get it. I, for the life of me, am still stumped by why people in Japan have such a strong affinity for Japanese government bonds at this stage, given all of those signs.
But, here we are, and you know, we can still clearly say that as positive as negative interest rates ought to be, they still aren’t really as conductive or conducive yet for higher gold prices as I thought. And, I’m going to go back to Grant Williams. I still think “not enough people care,” to paraphrase, his Nobody Cares piece from a year ago.
Dave: Yeah, that nobody cares thing was - that was a homerun for me. Bottom line is big money has to agree with - with whatever it is your viewpoint is. And, if they don’t, then it doesn’t matter what your viewpoint is. You may even be right, you know, in the long run, but until big money starts to act on that, it doesn’t matter. So, in some sense it’s, what is it - Flex says gold is just a price. It’s not a pet rock per se, but it doesn’t have a yield and it, it’s just a price. And, so what do you think it’s worth as—it’s not like silver where you can make a big solar panel out of it. So, in some sense, how many people want to buy it is really what determines where gold goes. I mean, it’s a funny thing. People say: it’s money, it’s this, it’s that. But it, it really is just—because, there’s 170,000 tons of it lying around. It’s not like it goes away.
Chris: Well, right, but it does flow from point A to point B, and it goes hither and yon. And, of course, we know that there’s been a heavy flow from West to East, and that’s been persisting for a while. Longer than I thought that it would. I thought the West would want to hold onto it, but if the West doesn’t care, then it doesn’t matter. You’d be willing to sell it right out to the very last ounce if you just don’t care. I think that they do care more than they let on. I trust what people do before what people say. I’m that kind of guy.
I haven’t seen the central banks really in a hurry to sell their gold off, you know, outside of Canada, which did it a while ago. But, recently I haven’t seen that behavior. So, that’s kind of big money, and in fact, central banks have been accumulating. So, I can find all of these constructive narratives to build for gold in terms of where it’s flowing, who’s doing the buying. Things like that. But, still it’s clearly, I would say, I mean, it’s had a good run this year in 2016 on a percentage term. But, you know, over the last five years, it’s really gone nowhere and it gets up/down.
So, I would say that—this is the surprising part, Dave—if you said, you sat me down 10 years ago and said: “Chris, here’s the landscape, right. Central banks are printing like crazy. In fact, in fact, the Japanese central bank owns their government bond market. They are just printing as fast as the government wants to spend, buying it all up. And, interest rates are actually negative.” I wouldn’t have believed you, but they’re negative across trillions, tens of trillions of dollars of sovereign debt. What’s gold doing? And, I’m just telling it’s, has to be exploding. But, it hasn’t.
Dave: Well, well, to me, most inflation comes from private debt creation, and so what you’ve talked about is buying a bunch of government bonds, and as we know, that really hasn’t caused inflation, because it hasn’t caused—well, first of all, there’s not only private debt growth, but there’s also monetary, money velocity. And, so if velocity tanks and private debt growth basically doesn’t go anywhere; you don’t have an inflationary impulse in that sense. And, so that, if you look at private debt growth in China, it has been falling in terms of the rate of private debt growth.
And, that, and that is what I believe caused the commodity down cycle that sucked gold down along with it. And, that’s why, again, we were all promised hyperinflation. Did we get hyperinflation? No, we did not. So, the Western gold buyers said, “Hey, we didn’t get hyperinflation, so I think I’m going to sell.” And, more of them and then more of them sold and then pretty much nobody cared. But, now they’re like, hey, new thing, negative rates, wait a minute, negative rates, hey, gold is good. So, they’re coming back on.
And again, things don’t turn on a dime. People sort of have to come in slowly. Different people get convinced at different levels and I think it’s just going to be, I mean, gosh, I’d say 300 bucks in six months is pretty good.
Chris: Yeah, absolutely. Now, let’s, this idea of debt creation. This is really the cornerstone of the whole thing, of course. And, this is, you know, the original Crash Course, really. I mean, I’ve been, this is where my brain has been for a long time. We have an inflator dye system and the very center of the engine is, of course, debt creation, because that’s how we create our money. And, so it gets loaned into existence. And, yeah, we’ve pile on a huge amount of—according to McKenzie, 40-some trillion dollars of new debt just got, or 57 trillion, sorry, from 2007 to current. And, that was only through 2014. So, pick a new number, whatever it is, 60, 65, 70, some number, tens of trillions of dollars have been printed. And, I would think, wow, that’s got to be inflationary, but it hasn’t. I mean, it’s been inflationary for financial assets. Let’s be clear about that. And, it’s been inflationary for the people who are at the front of that trough. Try buying trophy properties, Gulfstreams, big jewels, Warhol paintings, that kind of stuff.
But, leaving that little piece aside, really, when we look at what happened, governments went heavily into debt; distributed that money out. That wasn’t as inflationary as we thought it was going to be for a variety of reasons. And, then corporations sucked up a huge amount of new debt, and they didn’t do anything really inflationary with it either. They retired shares, so they did a lot of financial engineering.
So, I’m starting to develop this narrative that says that financial engineering really is more about sloshing money about the plate, and it’s not about actually creating anything productive. And, so that’s the missing transmission piece in this story.
Dave: Right. So, if you have debt creation, the question is where does that money get spent. If the money gets spent in the asset market, then asset market - asset prices go up. But, if the money gets created and spent into the real economy to build a house or to buy a car, then that - that causes more consumer inflation. With globalization, though, we have this weird thing where we don’t have wage growth, because the wage - kind of the wage growth leaks overseas. And so, even though we have a spike in money here, for some reason, it doesn’t - it doesn’t get through to wages. And this is, I think, one of the things Fed has been surprised with. Because, again, we went and spent 20 years doing globalization. Hey, wait a minute, we don’t, I don’t have wages going up anymore. What’s going on with that?
So, I mean, that - that’s a piece that was going on during the ‘70s, and that’s why labor unions were all strong and what-not. And now, with globalization, they’re gone. And so, we had a big thing about raising minimum wage. But boy, I read a stat where it said that if you adjusted for inflation, it was, well, I shouldn’t say, because I don’t remember it. But, it wasn’t that much of an increase if you adjust for inflation. So, again, it’s sort of the transmission. like you said, the transmission mechanism, if it’s to assets, it really doesn’t cause the inflation that they wanted to cause, and it’s not getting to the consumers to make their wages go up. So, it’s, their trick just—maybe that’s why the gold price didn’t, didn’t go up there, too. I don’t know.
Chris: Well, I think the transmission mechanism is important to understand, because the idea of inflation by itself is not a good or a bad thing. They talk about it like it’s a necessary thing. Inflation’s helpful if the people who are receiving the inflationary increases are the same people who hold the debts that they need to pay back.
Chris: That - you need that coupling there. So, it doesn’t really help that - it’s like that old maxim, you know, an economist has one foot in boiling water and one foot in liquid nitrogen and he says, “On balance, on average, I’m fine.” Right.
Chris: The on average piece isn’t working here, so the Fed did. They funneled all this money into the markets and, guess what, the markets went crazy with it. You know, the price/earnings ratios, I know that you could find some value plays out there, but I’m still astonished when I do my screens of stocks and I say: “Show me screens of stocks with PE’s over 200 who have a market cap over a billion,” right. So, these are big companies. You get a lot of screens of companies. And so, it’s really an astonishing thing there where you’ve got people saying, “Yeah, I’m willing to accept 200 years of current earnings before I’m going to get my dollar back from this particular ‘investment.’” Right? So, that just shows that we’re like a pretty aggressively liquefied environment at this point in time. That the central banks are doing everything they can to perpetuate that.
But, let’s get back to that on-balance quote. They’re shoving all this money in and it creates this higher appearance of things being okay. But, it’s not okay on, you know, the on-average is hiding the fact that none of that really seems to be going from - I’m going to say upper-middle class on down - is getting none of that. And, those people have flat wages, if you believe the inflation numbers. If you believe inflation might be a percent or two higher, which I happen to believe, than officially reported, they’re actually sinking. Ergo you get the political environment that we’re in with a lot of unhappy people and confused pollsters. Like, why are these people so unhappy? I’m doing great in D.C. My life is fantastic.
So, I think that what’s really happened here is that the Feds’ models of we push this stuff out and wonderful things happen; I think that transmission mechanism is broken. Globalization is one piece. Here’s the second piece. Our markets are broken. They don’t function like they used to. They are very asymmetrically tilted towards big players, more well-connected players, people with microsecond co-located servers. There’s a - almost like piranhas - you know. They get first dibs on the carcass in the water, you know. There’s not a lot left for the other fish downstream once they’re done with it. That’s my view. I think, you know, those are some really big trends that have been hard to understand and get my hands around. Because, the changes in the marketplace in the last 10 years are probably the most sweeping, extraordinary, complicated changes that have happened ever in the history of markets.
Dave: Yeah, so where did you want me to contribute to that?
Chris: I want to know how we’re supposed to trade this.
Dave: Oh, right. Okay. Well…
Chris: Like, I’m going to, I’m trusting that you’re going to say: “Chris, that’s just how they happen to be, so let’s just accept that and move on.” What’s the acceptance part of this? How do we accept this as traders?
Dave: Right. So, it’s about timeframes. So, if you want to compete, right, if you want to compete in their timeframes, you’re going to lose. So, you’re entirely right about that. If you want some perspective on just how horrible markets were back then, my favorite quote is, of course, the Where are the Customers’ Yachts book, in where a guy was allegedly taken down to the docks in New York. And, the tour guide says: “Well, now, I want to show you the bankers’ yachts, and I want to show you the brokers’ yachts.” And, the guy asks, “Where are the customers’ yachts?” Everybody laughed. Customers don’t. So, bankers and the brokers have made money from time—and, this book, by the way - that’s the funny part - it was written in 1940. So, have things changed? Eh, probably technology’s changed, but do they, do they front-run your orders? Yes.
Great, a great trader that can help me learn about basics has said this has been happening forever, and he’s quite unhappy about it. That’s sort of his reason for existence is to educate people how not to buy what they are selling. Again, we had a post, we had a post on Peak Prosperity by a guy who came and said, “Yeah, so the silver’s running out, you got to buy now.” And, I looked at this and I said, “Right.” So, guy works for a bouillon provider, and he says, “You’ve got to buy now, because silver’s running out.” Oh, interesting. This is no different than what the sell-side analysts do for us. They try to get you to buy for whatever emotional reason, because it benefits them.
And, so, yeah, what you got to do is not trade in their timeframe. So, you can’t trade in the Citadel’s timeframe. And, I agree with you about the stops. They’ll know where your stops are placed, and so you kind of got to not use them. You can’t - you can’t really have stops. You can sort of assume that the stops are going to run or put them - put them as a mental stop and then just execute it. That’s what - that’s what I do. I’ll look and say, but you gotta be really disciplined to do that. Say, well, it went against me and I think I will just, right, there, I think this is my stop and I’ll get out now. But, you can’t play their timeframe game, and it’s also the case where articles in the news are written to motivate you to sell through either fear or greed or what have you. I mean, it’s a rigged game. It’s a rigged game if you play by their rules. So, what you gotta do is trade longer timeframes and, well, at least I’m working on writing some code to try and help me sort wheat from chaff.
But, it’s not an easy thing, like you say. And, I don’t know if it’s dramatically worse now. I mean, if I read what the old book said, it seemed pretty bad back then. Maybe we just, I don’t know, maybe it’s just the fact that computers do it so fast that we can no longer compete in that timeframe, either. I don’t know.
Chris: Well, it’s interesting, you know, of all the hedge funds, the hedge funds have had a pretty bad run lately. The most recent article I read said that, well, they did except for one subclass of hedge funds, and those were basically momentum traders. And, so these are just, I hesitate to use the word hedge fund, because the word hedge is in there. It implies that you’re long something, short something else. You’re hedged and you’re going to make some money on your genius alpha picks. But this hedge fund, these hedge funds, all they do is they have computers that are just there sniffing for the direction of things, and then they see a direction, they jump on, right. And, so that’s been a fairly lucrative strategy for these funds.
So, it’s not hard for me to imagine that if I were going to co-locate some of my New York Fed staff in Chicago, because we didn’t want any more Sandy flooding. That was the reason they gave. Oh, Chicago, we’re going to pick Chicago. Also happens to be where the Chicago Mercantile Exchange is located, fancily enough, which is a place where you can, with extraordinary leverage, toss money into the market and get the momentum guys interested. If I was going to write a novel—I’ve said this before, but I’ll say it on air—if I was going to write a novel about how I was manipulating the markets for policy aims, I would be doing it through highly leveraged vehicles, dumping money and trusting that all those piranhas that represent the momentum traders are going to do my heavy lifting for me. I just have to throw a few bucks in there. I just have to get the thing going.
I think that’s what I’ve seen happening, because I follow a wide variety of market indicators that say all of a sudden everything just reverses this other direction. And, I watch things, the fair value premium explode, I watch the tick explode. I watch certain things, and it happens so fast now that I can tell you that those sorts of changes weren’t happening when I was watching those indicators 10 years ago. So, maybe it’s either just new market structure, but here’s my theory. It’s that new market structure plus if I was in charge of trying to make sure these markets didn’t fall, because I was worried about that, this is what I’d be doing. And, here’s my rule of life, Dave, when I’ve thought of something, somebody way smarter than me has already implemented it.
Dave: Well, I totally believe on an intraday basis that all those things are quite possible. It is the—but, if you look at a six-year timeframe, the intraday stuff won’t, it’s not like you can add it all up and do it every day and the result will be X. You’ve got to push money into the market to make it go higher on a more permanent basis. You can’t simply—again, Citadel, if they, if they go home flat at the end of the day, they, I don’t, okay, I’m speaking out of turn, because I don’t know what their, what their methods are. But, my guess is they are not taking directional bets. They are doing the momentum thing during the day and going home flat, or something like that. Again, there’s no way to, there’s no way to sum up all of the trickery you’re talking about and end up with a higher market as a result.
Now, I do believe that you can cause a reversal intraday by doing exactly what you say. I’m certain of that. I’m certain that’s possible. In fact, I would be interested in writing some code to sense that and jump on board just to, just again, if making money is what your metric is, then, yeah, gee, if you can catch what they’re doing then by all means. But, it won’t push the market up in the long term, because that requires money flow in; money flow that’s directional; money flow that takes a position. And, my guess is that’s pension funds that are doing that, because these guys are desperate for return. And they cannot afford to miss out on any rally. And, I believe that’s what’s pushed us over the highs is—now, now maybe the plan, maybe the plan is you get the directional change to happen in the tactical level, and then maybe you have a good day. And, then the pension funds look and say: “Oh, my gosh, we got a rally. Quick, I’ve got to buy.” And so, but I suspect that they have to be in there, that there’s gotta be big money in there buying to, and buying and holding to keep those prices going up. That just - I don’t think it’s a sum total of trickery. I just, I just don’t think that works.
Chris: I agree over the very long haul. It can’t work. But, I think over the short haul, and for me that’s, that can extend out to years. So, but you could run that code, right. I think if I were you, I would check Japan, right, because we know for a fact that the Japanese central bank has been buying the ETFs; is now a majority of many of those products. And, preferentially, buys during downtick days or days where the market looks like it needs support. So, if you’re gonna say: “Listen, I know central bank is doing it. I know they’re dumping money in, and I know they do it during preferential moments in the markets.” If that would be the market, I would suggest it would be detectable, if it’s going to be detectable anywhere. Because, we already know it’s happening.
Dave: That’s interesting. Yeah, I mean, I haven’t looked at it. I’m one of these people where, say for example, a great case is manipulation. People are saying: “Oh, this is manipulated, this is manipulated.” And, I went and looked. I’m like, oh, now look at that, sure is. And, so again, if I find evidence for it, I’ll change my viewpoint right away, but until I’ve actually put eyes on it and seen, or slash, if I can, if I can make money doing it…
Dave: …then I’ll be like, oh, yeah, by the way, it’s manipulated all right.
Chris: Well, I love that piece you did. So let’s just contrast two thing, silver and natural gas: both very highly volatile commodities, both with industrial uses, both mined, as it were, taken out of the ground and consumed. Should be fairly similar in how they trade, and you found vast differences in how they trade.
Dave: Well, boy, you caught me a bit. Now, I have to remember back to what I actually wrote. Yeah, my memory is that nat gas was—well, see, the other problem with nat gas is that it has these tanks and these storage things. It’s easier to store silver, because it’s just a lump of silver. And, so cheaper and easier to put it there and sell. There is, there’s that aspect of it. I suspect it’s more like, I would guess copper in a sense, where, I mean, copper’s not going to leak out of a tank and it doesn’t cost too much to store a big pile of copper. So, in terms of carry cost, I would guess that there, that would be a factor to some part of the dynamic there.
But, certainly, you know, if—I looked at the last, the last rally in rally and I don’t know, I don’t have any evidence for it, but my guess is, if I were them, I would buy, causing the crazy rally all the way up and make money. And, then I’d flip it and go short and push it all the way down. I mean, again, these guys are here to make money and they’re going to terrify the shorts on the way up and then they’re going to terrify the longs on the way down, and they’re going to make money on both sides of it. And, that’s, I mean, again, if they - if they had a decent amount of control of a small market and the ability to do this without anybody really monitoring what they do, that’s what I’d do. Again, I wouldn’t restrict myself to just short. I just wouldn’t.
Chris: Oh, no, absolutely. This is a wash, rinse, repeat. Make money both directions. That’s their job. And, by the way, we do focus on precious metals and I do believe that people need access to precious metals to protect themselves from a - the currency nightmare that’s coming. Anybody in Japan, if you’re listening, get out of the yen, please. Do yourself a favor. If you money in an Italian bank, don’t, okay. These are just some things. But, what do you do with that money, particularly in Europe where the bail-in provisions are now entrenched. It’s like, well, just get out if you can. Big companies have trouble, but small investors, I think can at least park some of their money in cash and precious metals. Things like that.
But, leaving, you know, putting all that into a space, I see these sorts of shenanigans, Dave, in all kinds of products out there. I see it in a wide variety of commodities. I see it in a wide variety of single-share issues. I think I see it in the broader market. It’s just, it gets back to where are the customers’ yachts. The point of the game is to take your money.
Dave: Yes, 100%.
Chris: Yeah, that’s the point.
Dave: 100%. It’s all a skimming thing, and they’ve got, yes, 100%, I agree.
Chris: Yeah, so watch “Wolf of Wall Street.” It’s the best documentary of our time. Well, except for “House of Cards,” but…
Dave: Oh, so just, just as an aside, in the, speaking of the “House of Cards,” where Michael Gov [PH] stabbed his buddy, Boris, in the back, and now has been kicked out of the government. I saw that. It’s interesting that the new prime minister seems to have a sense of fair play, which I thought was interesting. Did you, did you notice that?
Chris: No, no, I didn’t see that part.
Dave: So, he was, I forget what Gov’s position was in the government, but May, when she formed her cabinet, gave Boris, the foreign minister, which of course he’s not particularly diplomatic…
Chris: No, no, I saw that. That surprised the heck out of me, and that’s the last job I would give that guy, literally.
Dave: Right. Donald Trump, you’re the, you’re the Secretary of State, same sort of thing. So, but it’s like, well, pal, you’ve been stabbed in the back by your buddies, so guess what, you’re going to become foreign minister and the guy who stabbed you in the back, you know what, you’re out of the government. And, I thought, I looked at that, and I thought, that’s pretty classy. It’s an unusual thing. It’s like the guy in the “House of Cards” just got kicked out of the government. Wow. That’s, it’s like, I don’t know, I don’t know anything about her particularly, but I thought was a particularly, it was cool, I liked it. Anyhow.
Chris: Well, accountability and actual consequences, yeah, we’re starved for those over here in the United States. I don’t know how it is over in Thailand, but, oh, my gosh, accountability seems to actual run counter to what it ought to be. Like, what, you got promoted. That’s - that, okay.
Dave: No, it’s, as I’ve written on the site many times, there’s a darkness at the heart of our civilization right now, and it’s big. It’s just big right now. And, the markets are a part of that, but it’s just a small part. I mean, it’s, the whole—what was the legislation that was just recently passed by the Senate, the GMO labeling laws. We wouldn’t want Vermont to actually be able to label something that it’s got GMO in it. So, we’ve got to go and kneel to Monsanto and whoever else, and I don’t know the issues that well, but again, this is, I mean, just the sheer number of, sheer amount of corruption. See, that pisses me off.
Chris: Yeah. Well, we’re in agreement on that; violent agreement.
Dave: I mean, I guess I’m used to, I’m used to the corruption in the markets, because they’ve been this, they’ve been here since time—it’s like I’m expecting my pocket to be picked. It’s like part of the game. But, I don’t know, somehow it’s, somehow it’s expected in the markets and I’m just on guard for it. But, when it happens in, I don’t know, other places it bothers me more, something like that.
Chris: Well, absolutely. This has been a ripe year for people, particularly with access to the Internet, to find lots of things to get a little bit outraged about, if you choose. And, the political process has been as ugly as anything, and it’s not just the quality of the candidates. But if you really look at what’s happened, and particularly what happened to Bernie Sanders. That election was stolen from him, flat out stolen.
Dave: California, we’re not going to count the three million votes, 75% of them went to Sanders. Oh, we’re not going to count those, because uh, what, not really sure, but we’re not going to count them. Oh, we’re counting them very slowly and, oh, these didn’t make it into the cut, and by the time they count them, Bernie Sanders will be, he’s already, he’s already said, “Okay, atta girl for Hillary,” and, ahh, oh well.
Chris: Yeah, yeah.
Dave: Gets me upset.
Chris: Well, and particularly for the United States, which, you know, runs around and bombs countries for not being democratic enough. You would think that you would have your own institutions pretty, pretty rock solid. And, the United States has some of the least secure voting systems in the world, and they are routinely abused. And, anybody with even passing statistical knowledge can say that’s, that’s an impossible result, right. They just…
Dave: I gotta say, I was in a state of blissful ignorance until I, until I read your, your piece on that just recently. And, I looked at that and, I mean, my background for years and years of software and before that, it was, oh, when I was an undergrad, I might’ve broken into a system or two back in the day.
Chris: Of course, who didn’t?
Dave: But, I did it in a particularly high-tech way. But anyhow, we’re not going to go into that. No, but I looked at that and I thought, right, so I get these updates based on my experience in the past about security; security breaches from the Secret Service. They do this sort of for businesses to assess, assess where their vulnerabilities are. And, they’re pretty clever. I mean, I went to a conference and the guys out there are really pretty clever about how they do things. And, the voting machines would be pretty easy compared to say all the stuff guarding real money. Because, again, if you’re guarding real money and the money disappears, people say: “Wait a minute, my money’s gone,” and they complain to the Secret Service. But, how do you know if the votes are deferred unless you, I mean, that’s not like there’s a pot that gets stolen; that’s gone once, you know, it’s taken. It’s this, it’s this really ephemeral thing which you don’t really know the right answer for anyway. And, so if it changes, how do you really tell? And, so I mean, I don’t think it would take much, just based on my experience. And, so again, when I read your article it just all clicked. It was like, oh, wow, oh, yeah, this is, this is owned. This is all totally owned. Maybe not all of it, but I think, I think what the struggle is - is how far to push things before it becomes too obvious. And, so that’s really, how much should we have the candidate win by. Boy, that’s too obvious. Maybe we won’t do that far type of thing. I mean, again, I don’t know if it’s everywhere, but it’s, it’s enough to where, it’s easy enough to where I’d be, I’d be shocked if it wasn’t 30%, 30% of the machines.
Chris: Oh, yeah. And, it’s key swing states that are the most heavily bastardized at this point in time. And so, the general thing is listen, when you’re in a winner-takes-all environment, 50.1%; that’s all you need, right. It doesn’t, you know, and so they, the first returns—it was funny watching this. You know, you plot it out, in 2000, 2004, when they were sort of getting this down, they had these atrocious results that got posted. Like, more people voting than lived in the county kind of stuff, right. Because, there’s some poor guy in a room somewhere just sort of like coding stuff in, just like throwing votes hither and yon, and so they had a few, a few errors. They’ve gotten a lot better at it. It’s much more sophisticated. But you can still see, detect vote drift and you can look at what happens in cumulative counts over time that things happen that really shouldn’t happen. And, would be prima facie evidence in other countries of voting fraud and irregularity like they had in Austria. Very proud of Austria. They had, the constitutional court looked at the returns and said, “These, these stink to high heaven. We don’t know how or why. We can’t account for it. So, we’re going to redo the entire election, and we’re going to do it differently,” right. I thought that’s how you do it in a democracy, right. In the United States, it’s like, oh, well, that’s, that was so yesterday. We can’t even, like why even look at California and bother counting those things. It’s done, it’s already done.
Dave: So, so my viewpoint on that is, again, I’m judging on where I was before I read your piece. If you are looking for your keys and you’re sure they’re not in the kitchen, it doesn’t matter how many times you look in the kitchen, you will not find those keys. If you’re sure that your processes are democratic and they’re good, you will not see irregularities. But, once you change your mind and say, “Hey, I’m open now,” oh, my God, look at all that. And, it’s all, it’s all there, it’s just all there.
Dave: So, again, I think part of the problem is we just, I mean, I just don’t think people believe it’s happening. Because, our story, our national story is, well, we’re a democratic country and our institutions are solid and they’ve been solid for 200-and years. And, well, no, that’s just a story.
Chris: And, that narrative drives everything and so this is, this is why, this is such a fascinating period of time right now. And, I love your market commentary, but I think I love even more everything that you write about, your understanding of humans, human nature, because of your own - you know - work and having done your own inner explorations to understand the importance of narrative. And, how belief systems really come into play, and that’s the softer side of what we do at Peak Prosperity is to try and understand—look, it’s not the data. The information alone is obviously insufficient. It’s just merely interesting unless people are going to act on it or it’s going to shift something, or it’s going to create some new outcomes. It’s otherwise useless.
But, to get to those new states of being, to those changes, now you have to walk through behaviors, which means you have to walk through beliefs, which means you have to come to grips with the idea that humans do a cortex, but also a very large and active limbic system. And, that, and I’m not talking this, I’m not talking as some enlightened Buddha who’s got it all worked out. Trust me, my limbic system’s alive and well.
Dave: So, hang on a minute. I’m a software guy, not a hardware guy. So, what’s a limbic system?
Chris: So, the limbic system is the brain stem, as it were. It’s the place, it’s your emotional center, so we have two functioning parts of our brain and grotesque, grossly, they said a long time ago, you know, you have your reptilian portion of your brain, and then we’ve got this more modern version that’s on top, right. So, we have, it’s kind of like we had an old COBOL system that somebody then put a whole bunch of like, you know, much more elegant, you know, Java programming on top of it, or something. But, the COBOL system, that limbic system, is where our, our emotional responses come from and are keyed into. And, so when people get PTSD, for instance, what they’ll, what happens is the memory gets encoded, not in their cortex, it gets encoded in their limbic system. And so, if you do a PET scan of somebody, a brain scan of somebody who’s suffering a panic attack, a PTSD-induced panic attack, you’ll see that their brain is lighting up almost entirely in the little brain stem area, in the limbic system, and not lighting up in their cortex. So, you can talk to these people all you want, give them modulating drugs that dial down the activity in the cortex, but it doesn’t matter. The brain is still firing alert warning signals out from a very deep area. So, the emotional center of us, which is really still encoded in the limbic system is driving the ship. And, all the other stuff is sort of laid on top of that.
Dave: The most fascinating scientific explanation I’ve heard for this is a guy—I want to make sure it’s right—Bruce Lipton, I believe, was the guy.
Chris: Yeah, the biology of belief guy.
Dave: That’s right. And, he talked about you have two computer systems in your brain. And, of course, I like that, because I’m a computer guy.
Dave: One is an extremely fast computer, it’s a 40 gigahertz processor and it responds instantly to any problem that comes up. It allows you to drive and chat with your friend and not even know where it is you’ve gone. You can’t remember anything. Because, your fast computer’s taking care of all of it. All the stuff you learn when you’re a kid, it’s all in the fast computer, and it sits there and it takes care of life for you. It literally does everything. Your slow computer is, I guess, your cortex, which can, it’s maybe 40 bits a second. It’s very slow. And, it can think about one thing at a time. And, so if your slow computer tries to deal and override your fast computer, the fast computer’s going to win, unless you have some technique for getting into that fast computer and taking that bit out that was programmed in there by the PTSD experience. Again, once you have a massive emotional experience, bam, it gets into the fast computer, because the fast computer says, “Hey, this is part of survival. I mean, we got to do this or else we’re going to die. So, quick, put a program in here, slam it in there,” and it’s in there for the rest of our lives. Until you can do something to change that fast computer, your slow computer has no chance. Anyhow, so I thought that was a really fascinating viewpoint, and it really, of course, being a computer guy, really resonated with me.
Chris: Well, good. Now, we can extend that metaphor just a little further. Because, it turns out that - that the really traumatic things that got encoded in us, particularly things that happened before we developed a verbal capacity at all, so let’s call it anything below the age of three on average. That stuff actually gets encoded and stored in the body, and we have, you know, people are like, “What? Why do we have a brain’s worth of neurons in the gut? And, what, you know, what do we mean? My gut says…” The truth is we have a huge amount of processing that happens in there and it’s got a parasympathetic and a sympathetic nervous system. And, it’s all tied into our neuroendocrine system. That’s why, you know, fight or flight, when you get scared, your adrenals, like know to dump a bunch of adrenaline and help you run fast and jump high and all that. So, these two systems are actually very much talking to each other all the time.
And, modern psychology has spent a lot of time in the head, and more recently we’re discovering that we have to include the body in that as well. And, this is a very exciting branch of research that I’ve come across, where people are making really important, big changes in terms of dealing with past traumas and being able to release those and step into a new, renewed sense of life.
A whole separate side conversation, but for our purposes, for me, it’s no longer sufficient to say, “We’ve got some great information. We’re going to share it.” We have to understand…
Chris: …the impact of sharing that information on people’s existing neuron systems. We can call it a belief system, but there was a wiring that says, “This is how the world works.” And biology said, “That’s useful.” Evolution said, “That’s awesome,” right. We’re going to wire you up in a certain way. But to get people to change, you have to understand that we’re running into wiring, both hardware and software, you know, to put in that metaphor. Both of those things are functioning, and it’s a big investment for somebody to say, “I’m willing to recode and rewire my system.”
Dave: Yeah, no, so what’s your—I know this is a side conversation, but it’s suddenly—what would you recommend as a book to read about that? I didn’t know you had neurons in your gut. Again, I’m a software guy, so...
Chris: Ah, so probably one of the best places to start for this, and this has been my Bible for a couple of years now. I read and reread this book. It’s called Healing Developmental Trauma. And, it’s by a guy, Heller, H-e-l-l-e-r. He’s a psychiatrist out of the L.A. area, and he’s developed a, pulled together, you know, like Jung did a good job, Freud did a good job, but, you know, we’ve learned a lot since. And so, this is really taking, as far as I’m concerned, sort of like Next Gen understanding of how humans operate. And, even though the title’s around development trauma, it’s really a book about how humans work. And, it’s - it’s really fascinating; and so it takes the latest that we know about neurology and how this nervous system operates in the body and the brain, everything we know about brain structure. Oops, and then, you know, couples it over with how we’re, how we are both aided and harmed by certain experiences we might’ve had.
And so, in a synthesis, I would say it’s one of the first places I found that explicitly says talk therapy has it’s limits, because it’s just hitting one of the three axis. You need to have your mind, your body and your spirit all engaged to really shift something. And, so spirit, call it whatever you want, chi, life force, God, it doesn’t matter, you know, energy, people have all sorts of different names for it. But, it’s clearly a thing that's—we have energy patterns that stand up in our body and we can explain neurologically how that happens now. But, if you’re just talking about stuff, you get so far. But, if you can talk about it and experience it through the body, and have a shifting of the energy pattern, I’ve seen people heal in, or shift in minutes where they’ve been talking about stuff for decades and it didn’t work.
So, this is super exciting, and I—yeah.
Dave: Talk doesn’t do, I mean, like you said, if you talk about the, just the simple, I mean, yours sounds much more complete, but if you look at it from the simple point of view of the fast and the slow computer, if you’re just talking to the slow computer and saying, “Hey, slow computer, you should change this.” And, it says, “Yes, I should.” Of course, the fast computer is completely unaffected by the whole thing.
Dave: If you only, and this is, to bring this back to what we’re talking about here, information which I, I guess I tend to over-focus on, just thinking about what you’re saying. I focus too much on information. Because, there is this, these two other massive pieces that are in fact required to actually bring about real change. It’s very interesting. Good takeaway from this, I think.
Chris: Yeah, and I think, I think this is, this is part of the, of the friction between the information and the gold bug camps, right. And, it’s because they’re just, they’re coming from completely different directions. I believe there’s a way to weld them and overlap them in all of this. But, it begins with the idea that—and, I do, I’ve got the gold bug gene in me, which I will, let me expand it and explain what I have. I have a right from a wrong gene, and I have a sense of what should be happening, right. So, here’s my view of the world. We should be noticing that we’ve lost 40% or more of the insect species, right. I just drove up to upstate New York yesterday, before I flew out here. And, that’s a six and a half hour drive, and we didn’t get a single bug on the windshield in middle of July. No, no, nothing, right. We used to have to clean off the windshield constantly when I was a kid, right. And, I don’t know why. You know, is it farming, is it habitat loss? It’s all rural farms. So, it must just be the way we—who knows what it is. But, I instinctively go, I think this is bad. I think losing your insects, I think losing the bottom of the food pyramid’s a bad idea, right, just as a biologist, I’m like, I think that’s awful. Or, losing phytoplankton in the ocean, same thing.
And, so I have this sense that what we should be doing as a nation, as a species, is having very different conversations than we’re currently having. But, we, to get there some things are going to have to happen first, and I think we’re going to have to have the sorts of soul-shattering experiences, which might be the Dow losing 90% of its value, or something that signals to people that it’s, that it’s time, you know, we’re the drunk in the gutter. And, I do believe that all of the suppressing and elevating and propping and weaseling that happens in the markets is simply designed to prevent us from looking in the mirror and saying, “It’s time to do things differently.” So, that’s, that’s my view.
Dave: So, I would agree with you in that. I don’t think this is a cognitive thing. I think that’s in the, that’s a gut thing. They don’t want things to blow up, and so what more can we do to keep it from blowing. And, it’s fixing the symptoms everywhere. Oh, well, if we patch this, we patch that then we won’t see the symptoms of all these issues. But, I guess, I mean, I was struck when you were talking about it all. If you go along, again, I’ll go back to the keys in the kitchen. If you don’t expect to see anything wrong, you won’t see it. If you don’t really notice the flies on the windshield, the bugs on the windshield - I mean, I’m not - I’m not a biology guy. And, so I would probably have driven the drive and not noticed that, just because I wouldn’t notice those sorts of things. And, like, in 2005, I didn’t know about peak oil until I read, like, wow, this is a deal.
And, so it, I think you’re right in that there has to be some sort of thing that happens to wake people up, whether that be the falling, a falling of the Eurozone or here in America. I don’t know what’s going to happen to us, but I think you’re right. There’s gotta be some “something” that jogs people out of their, their daily life, their work, their world. I don’t know what it’s going to be, but it has to be a feeling thing. I guess that’s what I come down to. It’s not a thinking thing, because thinking, as you have just pointed out, thinking gets us a very small part of the way. And, it’s only the opportunity to start feeling that actually causes real change and a real shift. It’s that feeling thing, like you said, that you could talk about and think about it, get information on it for the next 20 years and nothing changes. I think it’s an AA line. All of my best thinking got me here. Something like that.
So, yeah, the feeling thing, and sometimes, I remember a time when I was, I was training a student, not that I’ve trained many students, but the student wasn’t listening. And, so I had to actually give the student an action that had an emotional impact. Nobody got hurt, but the student never forgot, and it was the impact of the event that, ah, oh, I’ve got to listen to you. Oh, my way really won’t work. No, it won’t. Now, I could’ve spoken for minutes and it wouldn’t have gotten through. But, sometimes you just need to get punched.
Dave: Sorry, go ahead.
Chris: No, it’s absolutely true. And, it’s a well-known part of humanity, I think. There was this movie, “Kingdom of Heaven,” and anyway, there’s this one scene where the father is on his dying last words, and he’s conveying this really important soliloquy that his son is going to be able, needs to remember to pass to his son. And, he speaks the whole thing out and then slaps him really hard, right. And, that was what the Romans did was that when there was a really important lesson, you’d get clocked, because that would cement the learning right there and then. Where it’s just, and you extend that further, that’s PTSD, right. But, so we have ways of getting our attention finally captured, and you’re right, it’s not through that fast computer, that thing’s buzzing away. It’s cemented through that slower one.
And, so, you know, this exact conversation, Dave, is why I love Peak Prosperity, I love the people who’ve been drawn to it, that were curious. It all connects. We don’t know what’s going on. We got to keep figuring it out. But it’s been, for me, this has been like a giant, it’s like a continuation of what college should’ve been, which wasn’t for me, for a variety of reasons, right. But, what it should’ve been, which is that everything is connected to everything else. And if we’re curious, that’s what makes life fascinating and interesting and hopefully gives us an edge, time to time as, well, you know, when the big turning points come.
So, thank you for this very unexpected and wonderful conversation.
Dave: Well, it wasn’t unexpected, Chris. You asked me—I’m kidding. It did take an interesting turn. I gotta say that. But it really, I’m going to have to think about, more about the feeling. I don’t know how I write about feeling in the gold blog, but maybe I’ll find some way.
Chris: Well, if you find a way, let me know, because this is my struggle all the time - is how do I, how do I bring all of these elements together. And, I haven’t quite got the, the feeling part. It’s hard to write about. It’s easy, when we have the seminar at Row, this part comes up in spades. It’s much easier to somehow transmit and communicate in person. The writing, um, you know, because again…
Dave: It’s cold, it’s flat, it just sits there.
Chris: Yeah, you’re going through the fast computer when you’re writing, by definition, trying to—anyway, so…
Dave: Something like that. All right. Well, good luck with your conference and, yeah, don’t get converted to that libertarianism thing.
Chris: Well, if it makes sense I will, but I, so far, no danger. I will, I’m okay so far.
Dave: All right. Have a nice trip.
Chris: All right. Well, thank you for your time, Dave. I appreciate it.
Dave: Okay. Bye-bye.